As oil prices continue their free fall, oil companies in the United States are examining how low prices can go before their operations become untenable in the current market.
The price of West Texas Intermediate is clinging on at $55 a barrel — a fresh five-and-a-half-year low — while Brent crude is at a less-than-optimistic $60 a barrel. The drop in prices has largely been spurred by an ongoing glut in US oil production, along with OPEC's refusal to slash output. Indeed, American production this year has seen record highs, and 2015 looks set to deliver much the same — roughly 9.32 million barrels of oil are expected to be produced a day next year, which, while slightly down from previous projections, is still significantly higher than production seen this year. Those factors have created a dramatic slide in pricing, with major companies looking to slash costs and start share buybacks to limit damage. Expect casualties... Jean-Thomas Bernard, a visiting professor at the University of Ottawa, said he sees the US needing prices of $70 a barrel to maintain profits, while Saudi Arabia is able to get by on $5 to $15, the cheapest in the world. He added that consumers and investors have seemingly forgotten about low prices in the 1990s after a decade of stability. "We must remember that from 1990 to 1999 every single year the average price of oil was below $20 except for one year. Almost 10 years of very cheap oil," said Bernard. The low oil prices of the 1990s helped pave the way for an influx of sports utility vehicles and light trucks that require a large amount of fuel, and have become commonplace in today's world, said Bernard. In turn, oil prices rose and saw widespread stability for the decade.